As many consumers know, one of the most influential factors in your ability to obtain credit and favorable interest rates on personal and secured loans is your credit score. Your credit score is determined primarily by your payment history (charting all missed or late payments within the last seven years), with additional emphasis placed on the amount of credit currently extended to you and the amount of debt already in your name (among a number of other factors).
Because your credit score is used by lenders and credit card companies to determine your “credit worthiness” having a low score could end up costing you a lot of money in the long run. This is because a low score is interpreted as a high risk, which lenders balance by charging higher interest rates. If you have a high credit score you’re considered to be less of a potential risk, which allows lenders to extend you more money at lower rates.
The problem is that the process of compiling the information that makes up your credit score isn’t foolproof. All three major reporting bureaus (TransUnion, Equifax and Experian) may report different information about a consumer and, according to a recent study conducted by the Federal Trade Commission (www.ftc.gov), errors are even more frequent than originally believed.
Most interestingly, the report found that five percent of all consumers had errors on their credit report that could cost them money on loans and insurance. Overall, one in five consumers were found to have some kind of error on at least one of their three credit reports.
Of the consumers who identified an error on their report and filed a dispute with the corresponding credit bureau, four out of five had their credit report modified or corrected. Slightly more than ten percent of the consumers who had their credit report modified saw their score change as a result.
These findings highlight the importance of monitoring your credit reports regularly. Errors often go undetected until a potential lender pulls your report – at which point you may be on the verge of losing out on a good rate or not having credit extended to you at all.
All consumers are entitled to a free copy of their credit report from each of the three reporting bureaus every year. Be sure to take advantage and review your reports regularly. If you do notice an error, send a written dispute to the reporting bureau immediately – it can take up to 60 days for the dispute to be reviewed and the error corrected.
For more information on how your score is calculated, how to build good credit and how to correct reporting errors should they occur, be sure to check out our extensive financial education section. We also offer in-person workshops on this and many other topics in select areas.